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Have you decided to refinance your home or apply for a home equity line of credit but worry about your credit rating? Even with poor credit it is possible to refinance your existing mortgage or obtain a home equity line of credit. New practices in...
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Consider a Home Equity Line Of Credit
A home equity line of credit is defined as a process of
revolving your credit and using your home as collateral. Since a
home is one of the largest assets of consumers, many homeowners
make use of their credit line for major purposes such as home
improvements, education, medical bills and paying off other
debts.
Once you are approved with a home equity line of credit
program, you will be assigned a particular credit limit. The
majority of lenders determine the credit limit on a specific
home equity line by establishing a percentage of your home's
appraised value and subtracting the amount of balance owed for
your existing current mortgage.
There are also additional factors that will determine the value
of your credit limit. The lenders would consider your capability
to pay by analyzing your income, other debts, credit history and
financial responsibilities.
Almost all equity line plans are set in a fixed period. During
this period, such as five to ten years, you are eligible to
borrow money as long as it is within your credit limit. When the
said period ends, you could renew the home equity line of
credit. However, some plans do not offer renewals and once the
period has ended, you are not eligible to borrow any additional
money. Other lenders allow repayment for an agreed fixed period.
Usually, the draw period is often set at five to ten years with
a repayment period of ten to fifteen years. However, each lender
could set its own draw and repayment periods. The most common
draw periods are nine years and six months. The most common
repayment period is for twenty years.
Once you have been approved for a home equity line of credit,
you will have the benefit of borrowing up to your limit
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anytime.
The most common among the line payment methods are special
checks. Some credit plans allow you to use credit cards or other
methods to draw on the line of credit.
Some plans set limitations on the usage of the home equity line
of credit. Most plans allow you to get the minimum amount for
each transaction and maintain a minimum outstanding balance.
Some plans also oblige you to draw up your first advance as soon
as the line of credit is set up.
Of course, just like any other investment, there are costs in
establishing and maintaining your home equity line of credit.
First, there could be fees for property appraisals to calculate
approximately your home value. Second, most lenders require an
application fee that generally cannot be refunded if your
application is denied.
In addition, you will be paying closing costs such as title
search, attorney fees, title and property insurance, additional
taxes, and preparation and filing of mortgages. Once you have
received your home equity line of credit, there may also be
other fees during the entire plan period. These include
maintenance or membership fees and transaction fees during every
withdrawal.
Although with all of these fees, you will end up spending
hundreds of dollars just to maintain the plan, as your home is
served as collateral; your annual percentage rate becomes
extremely lower than any other type of credit. This interest
could allow you to offset all the costs of maintaining and
establishing the home equity line of credit. Sometimes, the
lenders waive a little or even most of the costs for closing the
deal.
About the author:
Learn how you can use a home equality line of credit - a HELOC -
to dramatically reduce your mortgage.
http://www.usecreditwell.com
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